VAT will be digital

The new making tax digital (MTD) rules will require most VAT-registered businesses to keep all their VAT data as digital records, and submit VAT returns to HMRC using MTD-compliant software. This will apply for VAT periods starting on and after 1 April 2019.

In theory there should be no human cutting and pasting, or retyping figures, at any stage between the initial recording of the transaction and the submission of the VAT return. All transfers of data between different software packages should be via digital links, which can be as complex as a suite of accounting software, or as simple as spreadsheet figures automatically read into an accounting package.

The digital links can stretch between your business and our firm using cloud-based software. Transferring the VAT data as a spreadsheet attached to an email, or on a data stick, will also count as a digital link.

HMRC realise that there is not enough time to redesign all accounting systems to insert digital links where there are currently manual stages, so the use of digital links will not be compulsory until April 2020. However, it will be necessary to use accounting software to submit the VAT return to HMRC using an application programme interface (API) for VAT periods starting from April 2019.

An API is like a delivery van which carries data to HMRC and back to the business. HMRC’s computer will receive the VAT return, then send an acknowledgment back to the business through the API.

VAT-registered businesses with annual turnover under the VAT registration threshold (currently £85,000) won’t have to enter the MTD regime until their annual turnover reaches that threshold. If your business will be required to use MTD for VAT you should shortly receive a letter from HMRC setting out what you need to do.

Please talk to us if you are concerned about how to comply with the digital recording and the VAT return submission processes required under the MTD regime.